The hunt for affordable reinsurance has leapfrogged concerns about finding fronting companies among captive insurers, according to an annual survey by the Captive Insurance Companies Association.
“Reinsurance was clearly a concern–it showed up on more radar screens than previously,” Michael R. Mead, who helps conduct the survey, said here during CICA's annual conference.
Among the other concerns cited by those surveyed, noted Mr. Mead, “collateral seemed to be going up [in importance]; policy language was tightened; autonomy was more restricted.”
He noted that finding domestic carriers to “front” for captives has been less of a concern in the past few years because the market for fronting services “seems to have stabilized.” The survey also indicated that fronting insurers are doing a better job.
Forty-four percent of respondents had fronting costs that were 5 percent of annual premium, while 37 percent reported spending 6-to-10 percent of premiums.
Nineteen percent spent more than $200,000 on fronting costs in 2006, while 25 percent spent that amount in 2005. However, on the higher end of the captive spectrum, 17 percent spent more than $1 million on fronts last year, versus 10 percent in 2005, CICA said.
When asked the primary reason they use a fronting carrier, 41 percent cited the need for admitted paper, 29 percent cited regulatory compliance, 9 percent said they needed a front primarily for its support services, 8 percent noted a global strategy, 5 percent cited marketing considerations, 4 percent reported an enhanced tax position, and 4 percent cited “other” reasons, according to CICA.
Mr. Mead said a goal of CICA is to get more cooperation from state associations to get the word out to captive owners about the survey.
The Vermont Captive Insurance Association and the Arizona Captive Insurance Association were instrumental in contacting members, he said. “We just need to get more responses and get more state associations to work with us.”
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